Anyone who has ever been looking for employment or searching for a new house will instinctively grasp the theory behind the 2010 Nobel prize for economics awarded today to Peter Diamond, Dale Mortensen and Christopher Pissarides: that finding the right job or flat is hard work.

You don't need a PhD in economics to know that the biggest hurdles in the labour and housing markets (among others) are time and knowledge. The perfect apartment might be out these, waiting, but unless you can get to hear about it then it might as well not exist. How long should you keep looking? The net result is that what economists call market inefficiencies or frictions that can gum up the housing market or cause unemployment to remain higher than it should, as well as taking longer and costing more to reduce.

But as the old economics joke has it: we know how this works in practice but does it work in theory? And it's this "analysis of markets with search frictions" that has won the Nobel prize for Americans Diamond and Mortensen, and Pissarides, a professor at the London School of Economics.

Here in the US it's the naming of Diamond that has got most of the attention – and for good reason, since Diamond would be putting his money where his Nobel is right now, except for the intransigence of a few Republican senators.

"Why are so many people unemployed at the same time that there are a large number of job openings? How can economic policy affect unemployment? This year's Laureates have developed a theory which can be used to answer these questions."

The US economy currently faces two crucial markets that are deep in recession (even if the overall economy isn't): its housing and labour markets. Unemployment nationally remains a touch below 10%, and that figure disguises a far higher rate of real-life unemployment. Meanwhile, the housing market remains deep in the doldrums in several parts of the US, particularly in regions of previously rapid growth such as Florida, California and Nevada. So it is remarkably apposite timing on the part of the award committee to name economists whose speciality is in precisely these areas, especially the labour market.

With US unemployment unusually high and likely to remain stubbornly so over the next few years, economic policy-makers are faced with difficulty in constructing the right mix of responses. Is the high unemployment structural or cyclical? In other words, is the rate of unemployment the result of seismic shifts in the US economy and caused by a mismatch of skills and job openings – as was the case in Britain for much of the 1980s – or is it a function of the recent sluggish growth, weak demand and nervous employers not wanting to take a risk? The answer to those questions could dictate very different policy responses.

To see this dilemma on the ground, my colleague Suzanne Goldenberg this month traveled to Elkhart, Indiana, the site of Barack Obama's first trip to talk up the economic recovery back in 2009. She found that unemployment there was still very high – 13.5% now, compared with 4% before the recession hit – but that job creation was being hampered by both cyclical and structural forces. A new firm making eco-friendly vans wasn't hiring because it wasn't selling its products. And a new electric car plant opening nearby wasn't likely to hire many locals because they lacked the high-tech skills it needs.

But there's another reason why this year's award is timely – as well as mildly embarrassing for Republicans (who by now – after recent awards for Al Gore, Paul Krugman and Obama – must loath the Nobel prize). Diamond, the Massachusetts Institute of Technology professor, happens to have been nominated by the Obama administration to a seat on the US Federal Reserve's board of governors – only to have his nomination snubbed by Republicans. Now Diamond has a Nobel prize on his resume it seems even more hilarious that Richard Shelby, a Republican on the Senate banking committee, could question Diamond's qualifications, saying that "the current environment of uncertainty would not benefit from monetary policy decisions made by board members learning on the job".

Since Diamond wrote his first blockbuster paper on capital theory, national debt and growth back in 1965, "learning on the job" is hardly going to be an issue. Of the three named by the Nobel committee today, Diamond is arguably the most accomplished and a distinguished successor to the great Paul Samuelson in the long line of MIT economists to win the discipline's biggest prize.

When Congress returns after the midterm elections in November, Diamond's name will be re-submitted. Surely even today's Republicans won't be able to quibble at his qualifications? Actually, on second thoughts, that's being too generous to the current crop of Republicans.

Steven Levitt, the author of Freakonomics and a former student of Diamond's at MIT, has an insight into Diamond's professional life that suggests even half asleep he'd do a better job making economic policy than some members of the Obama administration:

"The single most memorable moments with Peter Diamond always occurred in seminars. Diamond often would fall asleep in seminars, often for large chunks of time. What was amazing, however, is that he would open his eyes and then make by far the most insightful comment of the entire seminar! He also did something in seminars that almost no other economist does: he both posed tough questions that would undermine the entire thesis of the speaker, and he would provide the speaker the answer to the very question."